In a bid to encourage them to take their role more seriously, do-it-yourself super fund trustees who are behind in their annual returns are being reminded they have lost their extended entitlement to lodge them by mid-May next year.

With an estimated 16 per cent, or about 80,000, of the more than 505,000 DIY funds late when it comes to lodging their annual returns, the Australian Taxation Office has, in the past fortnight, sent these funds notices that they must lodge their 2012-13 annual returns by October 31 or face late lodgment penalties.

The ATO calculates penalties incurred from failing to lodge returns on time at $170 for each 28 days a document is late, to a maximum of five penalty units, or $850.

Further, where funds are two or more years behind, the ATO has recently advised their registration details have been removed from the government’s Super Fund Lookup service. The Lookup service is used by public super funds to confirm a DIY fund is bona fide when there is a request for a transfer of super from a large fund to a DIY fund. This removal will restrict the ability of DIY funds to receive rollovers from super funds regulated by the Australian Prudential Regulation Authority, which supervises industry, corporate, retail and public super funds.

The regulation details will be kept off the register until annual lodgments are up to date, the ATO says.

Another option for chronic late lodgment (about 8 per cent or 40,000 funds) is making some funds non-complying, which will see them lose their tax concessions.

Making sure DIY fund annual returns are lodged on time is an important part of being a DIY super fund trustee, super fund auditor
Chris Malkin
of Baumgartner Superannuation says.

All DIY funds have duties to themselves and other members, he says, so not lodging the annual return, which includes the fund audit, on time won’t be in the best interests of members.

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Making super DIY funds lodge their returns is another way for the ATO – as the fund regulator – to separate the responsibilities of DIY trustees from their entitlements as members.

While this happens automatically in large super funds because trustees are separate from members, with a small fund this can be muddied because the trustees and members are the same people.

Malkin suggests there are two reasons for the ATO being keen to get returns lodged on time.

One is to make sure funds pay the correct tax and annual lodgment fees on time; the other to send out the message it is serious about separating the role of trustees and members.

Auditors under spotlight

Malkin says the ATO has been signalling for some time it is intent on making sure DIY super funds are run properly and do the administrative housekeeping that comes with having a DIY fund.

Over the past couple of years, regulators have concentrated on sorting out how DIY funds should be audited, with auditors under the spotlight as never before.

Now they are focusing on the funds and will be using the revised audit arrangements that came into effect on July 1 to better police the compliance activities of the funds.

Malkin predicts the landscape for auditors will look very much like the landscape for tax agents, with the auditor the tool the ATO uses to look more closely at funds.

DIY fund compliance specialist
Sharyn Long
of Sharyn Long Chartered Accountants says it is standard practice under ATO lodgment rules to bring forward any extended lodgment requirement for the next year’s annual return if a taxpayer has failed to meet a previous year’s deadline.

This applies to all tax returns and not just super funds, although the ATO may be refining its own administration systems so it gets on to late lodgers earlier.

There has been a real focus by the ATO on tightening its DIY super database over the past couple of years, Long says.

That might have meant they are capturing more funds in their net and are more confident about sending these notices out.

It is certainly something DIY funds need to be aware of, she says.

Established DIY funds that have their returns prepared by a tax agent have an obligation to lodge them by May 15, or February 28 where a new fund is lodging its first return. In some cases, trustees can have a June 5 deadline for a fund that pays no tax because it is fully in pension mode.

If trustees haven’t met deadlines, they won’t get that entitlement the following year, Long says.

That said, if a fund is running late for a good reason, it can apply for an extension. As far as possible penalties are concerned, while they may be imposed for late lodgment, there won’t be any extra interest charged if there is not tax due. In addition, penalties are not automatically imposed in a heavy-handed way because there’s always been a concern with severely delinquent lodgers that they could be the result of a fund that has been wound up where the ATO records are not up to date. Or they could be funds that were incorrectly registered in the first place. It would appear there is a core of DIY funds that no one is really certain about that the ATO is working on cleaning up.

That said, making sure a DIY fund return is lodged on time is an important responsibility. The buck, ultimately, stops with the trustees.